Deterrence, Litigation Costs, and the Statute of Limitations for Tort Suits
Posted: 12 Feb 2001
The conventional justification for statutes of limitations is that evidence deteriorates over time, thereby increasing the likelihood of legal error. The optimal statute length balances this cost of a longer statute length against the dilution in deterrence that results from a shorter length. This paper develops a model to show that a finite statute length is optimal even in a world without legal error. The trade-off involves only litigation costs and deterrence: a shorter statute reduces deterrence but also saves on litigation costs by limiting the number of suits.
The paper examines this trade-off under both strict liability and negligence and shows that the optimal statute is (probably) shorter under strict liability. Intuitively, the marginal benefit of lengthening the statute is higher under a negligence rule because, by increasing the length of time over which victims can sue, deterrence is enhanced, which reduces the likelihood that a given injurer will be found negligent. As a result, the plaintiff's chances of winning are reduced, thereby resulting in fewer suits being filed. The paper concludes by presenting evidence for the theory in the form of statutes of repose for products liability suits, the discovery rule under negligence law, and the difference in the statutes of limitation for trespass versus nuisance.
JEL Classification: K13, K14
Suggested Citation: Suggested Citation